Proclamation No. 227/2001 Income Tax (Amendment) Proclamation

WHEREAS, it has become necessary to further amend the Income Tax Proclamation NO. 173/1961, as amended;

NOW, THEREFORE, in accordance with Article 55(1) and (11) of the Constitution, it is hereby proclaimed as follows:

1. Short Title

This Proclamation may be cited as the “Income Tax (Amendment) Proclamation No. 227/2001’’

2. Amendment

The Income Tax proclamation No. 173/1961 (as amended) is hereby further amended as follows:

1. The following new Article 28 is added after Article 27:

“28 Taxpayer Identification Number

1). TIN requirement

(a) Any person or organization having a tax obligation is required to obtain a tax identification number (“TIN”), but in no case may a person or an organization obtain more than one TIN.

(b) No taxpayer is to be charged a fee for obtaining a TIN.

(c) The registration process shall proceed according to directives issued by the Federal Inland Revenue Authority or the Regional Finance Bureax.

2. Tax withholding

(a) Any person or organization su
bject to tax withholding is required to supply the TIN to the withholding agent.

(b)When paying over the withhold tax, the withholding agent shall list the tax payers’ TIN number along with the amount of tax withhold with respect to that taxpayer.

3. Business Licenses.

(a) Any person or organization requiring to obtain a license to carry on a business occupation is required to supply the TIN to the licensing Authority.
(b) Any person or organization who has obtained or applied to obtain a license to carry on a business occupation shall have the TIN registered by the licensing Authority.

(c) All public bodies and institutions issuing a business or occupational license shall not issue or renew such license unless the taxpayer has supplied the TIN. Notwithstanding the foregoing provision the licensing Authority may not require the tax payer to supply a TIN if according to the registration Schedule distributed as per Sub-Article (1) shows that the date for his registration is not yet due.

4. Directives

(a) The Minister of Finance is hereby empowered to issue directives to provide procedures for TIN registration of taxpayers.

(b) The Inland Revenue Authorities who have received the directives issued by the Minister of finance, shall prepare a Schedule of registration for a TIN, which shall, inter alia, contain specific dates for registration of a given class of taxpayers, and shall distribute copies of the timetable to all licensing authorities.

2. Articles 28-74 are renumbered as Articles 29-75 respectively.

3. Article 40 of the Proclamation is deleted and replaced with the following new Article 40:

40 (a) Presumptive Taxation Measures

A standard assessment method shall be used to determine the income tax liability of category “C” taxpayers:

( i ) The standard assessment shall be a fixed amount of tax determined in accordance with Regulations, to be issued by the Council of Ministers, establishing a Schedule of standard assessment amounts that reflect variations in the type of business, business size, and business location. The taxpayer shall pay the tax determined in accordance with standard assessment from the 7th day of July to the 6th day of August every year unless the taxpayer requested and is allowed to make installment payments in accordance with the Council of Ministers regulations.

(ii) A survey of Category “C” businesses shall be conducted to collect the data necessary to fix the standard assessment amounts. Planning for the design and implementation of the survey is to begin forthwith after the date of enactment of this Proclamation. The recommendations of the survey shall, be submitted to the Council of Ministers within one year from the date of entry into force of this Proclamation.

(iii) Prior to the effective date of the standard assessment Schedule, a transitional tax computation rule shall be used to determine the tax liability of Category “C” taxpayer Under the transitional rule a category “C” taxpayer shall be liable to pay the amount of tax due for the preceding tax year, adjusted upward by a coefficient of 6% (six percent)

“40 (b) Current payments of income tax at time goods are imported

A current payment of business income tax has to be collected at the time of import of goods for commercial use, and the collected amount be treated as tax withheld that is creditable against the taxpayer’s income tax liability for the year.

(i) The amount collected on import of goods shall be 5% (five per cent) of the sum of cost, insurance, and freight (‘CIF value”).

(ii) If the amount of income tax collected on the import of goods results in underpayment of business income tax due for the year, as determined at the time of declaration of income tax, the taxpayer is required to pay the difference with the declaration. If the amount represents an overpayment of income tax due for the year, the tax authority shall forth with refund the taxpayer the amount overpaid.

(iii) The tax collected under this Article shall be recorded and accounted for using the taxpayer’s name, address, and TIN; provided, however, that if a taxpayer has rot obtained a TIN, the records shall be kept using only the taxpayer’s name and address until such time as the taxpayer supplies a TIN to the collecting agency.
(iii) For purposes of implementing the provisions of this Article the Minister of Finance shall, by directive, define the term “for commercial use”.

40 ( c) Withholding of Income tax on payments.

Category “A” taxpayers, government agencies, private nonprofit institutions, and non governmental organizations (“NGOs”) shall withhold income tax on payments made to persons within categories specified in Regulations to be issued by the Council of Ministers.

(i) The amount to be withheld shall be 5% (five percent0 of the gross amount of the payment

(ii) On the last day of each month, the withholding agent shall transfer to the government the amount required to be withheld on payments made during the month. The withholding agent’s aggregate monthly transfer shall be accompanied by a statement listing separately each specified person to whom payment were made; the person’s tax identification number, the monthly total of payments made to that person, and the amount of tax withheld and transferred to the government with respect to that person.

(iii) If the amount of income tax withheld on payments to a specified person results in underpayment of income tax actually due for the year, as determined at the time of declaration of income tax, the taxpayer is required to pay the difference with the declaration. If the amount of income tax withheld results in overpayment of income tax actually due for the year, the tax authority shall forthwith refund the taxpayer the amount overpaid. .

40(d) Withholding of income tax on deposit interest income.

Payers of interest shall withhold income tax on the payment or crediting of interest equal to 5% (five per cent) of the amount of interest paid or credited. The withholding of tax and payment of withheld tax to the government shall follow the procedures established in Article 40 (c) (ii) and shall constitute a final payment of tax.

40(e). Minimum tax on income of Category “A” and “B” taxpayers.

Category “A” and “B” taxpayers shall pay a minimum income tax equal to 2% (two percent) of turnover. If regular tax liability exceeds the minimum tax amount, the taxpayer shall pay the regular tax rather than the minimum tax. If regular tax liability is less than the minimum tax amount, the taxpayer shall pay the minimum tax, provided, however, that if the taxpayer otherwise liable to pay the minimum tax submits books of account certified by an independent accountant the taxpayer is liable only for the regular tax amount.

5. The following new Article 69 “A” is added to Article 69: “69(A) Penalities.

Taxpayers Violating the provisions of Article 40 of this Proclamation shall be subject to the following penalities:

(i) A withholding person or organization who makes a payment to a person who has not supplied the TIN is required to withhold 30% (thirty percent) of the amount of the payment.
(ii)
(iii) A tax payer who has not supplied the TIN to the Withholding agent shall, in addition to what is stipulated under Sub-Article (I) of this Article, be liable to pay a fine of Birr 5,000 or the amount of the payment, whichever is less.”

6. The following new Sub-Articles (d) and (e) are added following Sub-Article “C” of Article 70:

“(d) If a taxpayer required, by Article 28, to obtain a TIN fails to do so, that person is liable to pay a fine of not less than Birr 5,000 and not more than Birr 10,000. If such a person is convicted of having internationally failed to obtain a TIN, that person shall be liable to pay affine of not less than Birr 10,000 nor more than 20,000 and to imprisonment of one year.

(d) If a person subject to tax obtains more than one TIN, that person is liable to pay a fine of Birr 5,000 per additional TIN obtained. If such a person is convicted of having intentionally obtained more than one TIN, that person shall be liable to pay a fine of not les than Birr 10,000 nor more than Birr 20,000 and to imprisonment of one year per additional TIN obtained.”

3. Effective Date.

The Proclamation shall come into effect, as regards,

(a) The provisions of Article 40 (a), on standard assessment for Category “C” tax payers, as of the 7th day of July, 2002.

(b) The provisions of Article 40 (e) minimum tax on income, as of the 8th day of July, 2001.

(c) Other provisions as of the day of ratification of the Proclamation by the House of Peoples’ Representatives.

Done at Addis Ababa, this 4th day of January, 2001.

NEGASO GIDADA (DR.)PRESIDENT OF THE FEDERAL DEMOCRATICREPUBLIC OF ETHIOPIA